Tag: Troutman Pepper

Legal Insight

Credit: Federico Magonio
By Jean Gonnell, Christina Sava and Nicholas Ramos (Troutman Pepper Hamilton Sanders Tobacco and Cannabis Team)
Across the United States hemp products seem to be everywhere. From corner stores to spas, one can find a hemp- or CBD-infused version of almost anything. Hemp and its derivatives are found in foods, cosmetics, hand-rolled cigarettes and vape pens. A new category of “intoxicating hemp products,” such as delta-8 THC products, have taken the hemp industry by storm. Although the market is vast, the regulatory landscape contains many pitfalls. Potential market entrants must carefully research the applicable laws, and take into account any federal-level risks, before deciding to invest in a hemp or hemp-derived products venture. This article reviews the legal status of hemp-derived products, including smokable hemp products, at the state and federal levels.
Marijuana and Hemp
Marijuana and hemp come from the same plant: Cannabis sativa L., or “cannabis” for short. Cannabis has a long history of industrial and medicinal uses, and only a short history of prohibition, which we now see unraveling. “Hemp” is the common term for cannabis with a concentration of delta-9 tetrahydrocannabinol (“THC”) of .3% and under, while “marijuana” is used to mean cannabis with a delta-9 THC concentration over .3%. Marijuana remains a Schedule I substance under the Controlled Substances Act (“CSA”). Hemp production, on the other hand, was legalized by the Agricultural Improvement Act of 2018, or 2018 Farm Bill. At that time, Congress removed “hemp” and “tetrahydrocannabinols in hemp” from the CSA’s definition of “marijuana.” Specifically, the 2018 Farm Bill defined “hemp” as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3% on a dry weight basis.” 7 U.S.C. § 1639o.
So, although they are technically the same plant, hemp and marijuana fall under completely different regulatory regimes, with a single cannabinoid – delta-9 THC – determining whether a cannabis plant or product is hemp or marijuana.
THC, CBD, and Other Cannabinoids
There are over 100 cannabinoids found in cannabis. Perhaps the most well-known of these are cannabidiol, or CBD, and delta-9 THC. CBD is considered non-psychoactive and generally prized for its therapeutic potential. Delta-9 THC has long been recognized as the cannabinoid that causes users to feel “high.” Since the 2018 Farm Bill, however, other psychoactive THCs, such as delta-8 and delta-10 THC, have been identified in cannabis. The “high” produced by delta-8 THC has been described as partway between THC and CBD, with relaxing body effects and a less-potent “head-high,” while delta-10 has been described as producing a more cerebral high akin to sativa strains of marijuana.
So why the boom in delta-8 and delta-10 THC products now? They can be derived from hemp. Although found in much lower quantities in hemp than other cannabinoids, manufacturers have found ways to chemically convert hemp-derived CBD into delta-8 and delta-10 THC. Even delta-9 THC is being converted from CBD, and manufacturers are adjusting product ratios to remain within the .3% limit. The Cannabis Regulators Association has called this the “0.3% loophole” and stated: “While the threshold of 0.3% delta-9 THC (tetrahydrocannabinol) by weight is a small amount of THC in a hemp plant, when applied to hemp-derived products (e.g., chocolate bars, beverages, etc.) which can weigh significantly more, 0.3% by weight can amount to hundreds of milligrams of THC. For example, a 50-gram chocolate bar at 0.3% THC would have around 150 mg of THC (30 times the standard 5 mg THC dose established by the National Institute on Drug Abuse).”[1]
The Drug Enforcement Administration (DEA) more or less gave the hemp-derived delta-8 industry a green light in a September 2021 letter to the Alabama Board of Pharmacy. The Board of Pharmacy inquired as to the control status of delta-8 THC under the CSA. DEA concluded that “cannabinoids extracted from the cannabis plant that have a [delta-9]-THC concentration of not more than 0.3 percent meet the definition of ‘hemp’ and thus are not controlled under the CSA.” Thus, so long as delta-8, delta-10, and other extracts are derived from a cannabis plant with less than 0.3% delta-9 THC, they constitute “hemp,” which is federally legal.
Notably, “synthetic tetrahydrocannabinols” remain a schedule I substance under the CSA. Some argue that because delta-8 and delta-10 are produced through a form of synthesis, they are Schedule I “synthetic tetrahydrocannabinols.” Regardless of this argument’s merit, this is not the position DEA has taken thus far, and we do not see any indication that they will suddenly take this position in the near future.
FDA Enforcement and the Future of CBD Regulation
Nonetheless, hemp-derived CBD and THC products are still not legal to be sold as a drug, dietary supplement, or food, according to the Food and Drug Administration (FDA). To the extent a manufacturer markets its delta-8 (or CBD) products as intended to affect the structure or any function of a consumer’s body, FDA’s position is that the product is an unapproved drug. In addition, “food” (almost anything edible that is not an approved drug or lawful dietary supplement) may not contain unapproved additives. Any form of CBD and THC are not approved food additives.
FDA has also concluded that THC and CBD products cannot be marketed as dietary supplements, because the definition of “dietary supplement” excludes active ingredients that have been approved as drugs or have been authorized for investigation as a new drug. THC and CBD are both active ingredients in at least one FDA-approved drug. Other parts of the hemp plant that do not contain THC or CBD might be available for use as dietary supplements, so long as manufacturers abide by related requirements, including notifying FDA.
And, FDA is watching the marketplace closely and taking enforcement action where it sees fit. FDA has issued numerous warning letters to companies selling hemp-derived CBD and THC products with impermissible health or therapeutic claims; for misbranding, such as lacking adequate directions for use; and for using these cannabinoids as an unapproved additive in foods, such as gummies, chocolate, caramels, chewing gum, and peanut brittle. The agency has also published a general health warning for delta-8 products.
Industry and regulators alike have been anticipating some kind of regulatory action by FDA, but it appears this is yet far off. In January of this year, FDA determined that it does not have the appropriate regulatory pathway to regulate CBD products and called on Congress to pass legislation creating a new pathway separate from the food, drug, or dietary supplement pathway. Despite this regulatory uncertainty, sales of CBD products in the U.S. continue and could reach as high as $20 billion by 2025.
States and Hemp-Derived Products
Given the lack of federal standards and delta-8 and delta-10 (and likely other THCs’) psychoactive effects, state lawmakers are taking action to regulate products containing these extracts. At least 22 states have restricted or banned the sale of delta-8 THC products, while others are in the process of reviewing the cannabinoid’s status. One common way states are doing this is by limiting the total concentration of THC a product can have, rather than mirroring federal law and limiting only delta-9 THC concentrations. In Colorado, lawmakers have passed SB23-271, which goes further and actually classifies nonintoxicating cannabinoids, potentially intoxicating cannabinoids, and intoxicating cannabinoids. Products will be regulated according to which category of cannabinoids they contain.
In many states, a “ban” actually means that these products will only be available in licensed cannabis dispensaries where regulators can more easily track their production and sale, ensure that the products pass required contaminant testing, and prevent the products from being sold to minors. Retailers and manufacturers of hemp derived products, especially those wanting to sell nation-wide, must be diligent in tracking state by state restrictions on hemp-derived products.
Smokable Hemp
Smokable hemp, although it receives less attention than other forms of hemp products, is a major driver of hemp product sales. Smokable hemp is hemp flowers after they have been manicured and dried. Smokable hemp can be sold as “buds” or in pre-rolled hemp cigarettes. This hemp looks and smells a lot like traditional marijuana but is not psychoactive. While some users may feel a mild mellowing effect, most do not feel “high” after smoking hemp. This may be why smokable hemp is the only hemp product category that has experienced wholesale price increases over time.
The legal status of smokable hemp, however, also varies from state to state. Smokable hemp is illegal for sale in a handful of states, including Idaho, Iowa, Kentucky and Massachusetts. Other states do not place any restriction on its sales.
New York has banned hemp flower products that are “clearly labeled or advertised for the purpose of smoking or in the form of a cigarette, cigar or pre-roll.” California does not currently permit the sale of any “inhalable hemp” products, however labeled, having passed a law that prohibits the sale of such products until a tax on the products has been enacted. No such tax is yet in effect.
***
Given the above, it is not safe to assume that your hemp product is legal for sale because hemp is federally legally. It is important for retailers and manufacturers to be aware of the laws that apply to the types of hemp products they are selling. Although the DEA has been hands-off since the passage of the 2018 Farm Bill, FDA oversees all foods, drugs, and dietary supplements in the U.S. and maintains that THC and CBD, even though hemp derived, may not be added to foods and dietary supplements, or marketed as drugs. FDA does not oversee inhalable substances generally, and thus has not released statements related to the legality of smokable hemp. Smokable hemp may be a good market entry point, especially for manufacturers and retailers already familiar with highly-regulated inhalable products.
Troutman Pepper’s Cannabis Practice provides advice on issues related to applicable state law. Cannabis remains an illegal controlled substance under federal law. Its attorneys are available to provide more information about these opportunities.
[1] See https://www.cann-ra.org/news-events/sx2s63c2fudq9n0zmk4ekviku9747f.
September 15, 2023
Jean Gonnell Joins Troutman Pepper Tobacco Team

Jean Gonnell, a regulatory attorney with a significant focus cannabis and tobacco law, has joined Troutman Pepper’s Regulatory Investigations, Strategy and Enforcement (RISE) practice group. Resident in the firm’s Charlotte office, Gonnell joins from her private practice, Gonnell Law.
Gonnell began her legal career in Colorado, where she was at the forefront of cannabis legislation before the larger movement to legalize the drug. Over the course of her career, she has represented more than 100 clients in the cannabis industry, including approximately 15 percent of all licensed cannabis businesses in Colorado. With a deep commitment to her clients and dedication to the flourishing cannabis field, she continues to expand her practice and make a positive impact in the evolving landscape of cannabis law.
“Jean’s addition to the firm will deepen the expertise of the firm’s established tobacco and nicotine and cannabis law practices,” said John West, chair of the business litigation department, in a statement. “Her extensive experience will enhance the innovative solutions we provide for our existing cannabis-focused clients as well as expand the services we can offer to potential new clients in the space.”
“With the possibility of North Carolina passing a new medical marijuana regulatory regime, the timing of Jean joining our Charlotte office could not be better,” said Jason Evans, managing partner of the Charlotte office. “We welcome her and are confident that her guidance will help to expand our reach in providing service to clients.” Gonnell is the second partner to join the Charlotte office in recent months, following the arrival of white-collar partner Matt Orso in May.
Gonnell is licensed to practice in Arizona, Colorado and North Carolina.
“I’m thrilled to join Troutman Pepper due to its strong regulatory presence,” said Gonnell. “I chose the firm because it allows me to maintain top client service while also giving me the network to expand my practice to new fronts. I’m excited to continue working with my clients in Colorado while also expanding my client base here in North Carolina.”
July 18, 2023
Taxation Situation
Credit: enterlinedesign
Excise taxes on vapor and OTPs can present considerable administrative burdens on businesses.
By Bryan Haynes, Christina Sava and Robert Claiborne
Excise taxes on vapor products and tobacco products other than cigarettes, also referred to as “other tobacco products” (OTPs), present considerable administrative burdens on businesses dealing in these products. All 50 states impose excise taxes on most traditional OTPs, and have for a long time, but operators in the vapor category have been subject to rapidly shifting regulatory conditions as states update their OTP laws and other laws to account for vapor products.
Many of these laws are framed on traditional distribution models, and businesses’ innovations in routing taxable products to market can raise unique compliance questions. Recent legal changes have also raised new issues over the permissibility of state taxation of products coming in from another state. Where excise taxes are imposed on a product, the sale of such products requires licensure at various points in the supply chain, accurate bookkeeping, regular reporting, and tax remittance practices.
Typically, distributors and wholesalers of these highly regulated products may be the subject of audits by state revenue departments, and manufacturers and retailers may similarly be subject to audit depending on the auditing state. In our experience, it is a rare audit that does not result in an alleged deficiency. Some deficiency determinations are minor and easily paid while others can add up to hundreds of thousands—and even millions—of dollars due, plus interest and penalties. In such cases, it is imperative to engage the assistance of experienced counsel who can assist you in addressing the assessment.
A final deficiency determination can be crippling to a business. The audit process itself can be time-consuming and disruptive to normal operations, and any ensuing disputes will be even more so. It’s never a bad time to either establish an audit-readiness plan or clean up existing operating procedures to make sure a future audit and possible dispute go as smoothly as possible. We have drawn on our experience representing clients in such disputes to compile this list of best practices for avoiding or contesting OTP and vapor tax assessments.
Best Practices for Avoiding a Dispute

Understand your state’s licensure requirements. This tip should go without saying, but it is worth repeating given the rapid evolution of vapor products laws and innovations in businesses’ routing of taxable vapor or OTP products to market. If you do any business in traditional forms of tobacco, and begin selling vapor products, it would be prudent to confirm whether your state requires additional licenses, taxes or reporting for these products.

Know your regulator. For any highly regulated business, it’s important to be familiar with your primary regulatory agency and its agents and maintain a good relationship with them. Any time you are communicating with your regulator is a chance to make a good impression, so remain courteous and professional in your dealings with them, whether via email, by phone or in person. If there are occasions where you disagree with the regulator, you can do so respectfully and without being disagreeable.

Keep and organize accurate books and records. This tip is important for all business owners but especially for businesses that deal in excise-taxed products. Being able to produce accurate documentation of your activities can make all the difference in a dispute as well as prevent disputes. State laws typically establish the minimum record-keeping requirements. A good record-keeping system will include:

copies of invoices and receipts;

copies of bills of lading and other shipping documentation;

copies of all communications with state regulators; and

copies of documentation for any tax payments, tax reports and tax returns.
Make your records readily accessible as you will be asked to produce them during an audit. You will also want to promptly transmit records to your attorneys if you involve them in any phase of the matter. Verify whether your state requires you to maintain physical copies on-site or whether you can organize your records digitally.

Understand the applicable laws. This one is, again, obvious for all businesses but crucial for those dealing in highly regulated products. Keep track of the tax rate applicable to all of your product classes. If there is a question about whether your products qualify as taxable tobacco or vapor products, you should seek clarification and probably involve your attorney. Some laws, for instance, tax liquid nicotine but not certain other forms of nicotine while other laws tax products, such as vape products, that do not contain nicotine at all. Make sure you are signed up for alerts from your regulatory agency. If you don’t understand a change in law or policy, follow up with the regulator or experienced counsel for clarification. If you are going to seek a formal advisory opinion or even informal guidance from a state department of revenue, you will likely want to involve your attorney to ensure that you inform the department of all material facts and legal grounds that may distinguish your product or activities from coverage under the state’s excise tax laws.

File timely returns. Set up a system for making tax reporting easy and automatic. There are third-party providers that can assist if necessary. Filing thorough, well-prepared returns on time each month generates goodwill and can help prevent audits.

Periodically audit yourself. Set up periodic self-audits to ensure your reporting is accurate. Self-audits can help businesses mitigate issues that, if not discovered sooner, may result in large assessments. If you discover an issue, many state excise tax laws require that returns be corrected proactively. If you discover a major issue, it may be prudent to have a discussion with relevant taxing authorities but involve counsel early if you think you’ve discovered deficiencies. Some states have voluntary disclosure programs that may mitigate potential consequences from noncompliance.

If you are audited, make timely and thorough responses. If you are audited, it is critical to be responsive to auditors’ legitimate requests. Initial interactions with auditors can set the tone for the rest of the audit. Review requests for production thoroughly, note the deadlines and begin working on the responses early. Auditors appreciate well-organized productions, which are easier to provide if they are already organized and you’ve given yourself time to put together a thorough response.
Best Practices for Dealing with a Potential or Actual Dispute

Engage experienced counsel early. Consider contacting counsel the moment a request for records arrives. Counsel does not always have to respond on your behalf, but they can help you evaluate the legitimacy of requests and help you respond. You should contact counsel immediately upon receipt of a deficiency determination.

Be aware of deadlines. This one bears repeating because, in tax matters, missing a deadline can mean you have conceded to the assessment. Review the assessment carefully and note all deadlines. Review statutes, regulations and agency guidance to familiarize yourself with the appeal process, including any additional deadlines that might not have been identified in your notice.

Provide relevant information to your counsel as soon as possible and throughout the dispute. Is the disputed issue one that your business has previously discussed with the tax department? Has the tax department’s position changed at any point? Does the disputed issue concern products that had taxes paid on them in another state? Have there been any changes in the manner in which you conduct your business? What individuals or documents can address the facts in issue? These are just some of the questions your counsel may have, and there will be others depending on the nature of your dispute. It is important to make sure that you fully inform counsel of the relevant facts and documents early on and throughout the matter.

Keep perspective. Running a business is hard work, and a tax dispute will not make it easier. While you will naturally be eager for the dispute’s resolution, it is important to bear in mind that the dispute process can be lengthy. Most states route tax disputes through a maze of administrative processes before the taxpayer can have its day in court. Either party can have multiple stages for appeal. Also bear in mind that most disputes eventually settle. Keep a cool head, maintain professionalism and know that you’ll eventually be on the other side of this.
Proactive measures can help you streamline audits and mitigate the risk of tax assessments. If a dispute arises, early engagement with counsel is critical to developing and executing an effective strategy. Troutman Pepper’s tobacco team has substantial experience advising clients in vape and OTP tax matters and, when necessary, assisting them in disputing assessments. In 2022, we assisted clients in successfully disputing more than $45 million in claimed tobacco tax deficiencies.
When the taxman asserts a deficiency, you don’t have to resign yourself to “be[ing] thankful [he] don’t take it all.”[1] There is more that you can do before and after that point. Please let us know if we can help.
Bryan Haynes, Christina Sava and Robert Claiborne are attorneys for the law firm Troutman Pepper Tobacco Practice.
^[1] The Beatles, “Taxman,” on Revolver (1966).
February 22, 2023
State AGs Ask Congress to Fight THC That Attracts Youth

Credit: S. Price
By Agustin Rodriguez, Chris Carlson & Christina Sava
This article was first published on the Troutman Pepper blog, Regulatory Oversight
On June 23, the Virginia and Nevada attorneys general sent a letter on behalf of a bipartisan coalition of 23 state attorneys general, expressing concern about edible products containing tetrahydrocannabinol (THC) sold in packaging to look like popular snacks and sweets.
Before Halloween 2021, a number of these same attorneys general warned parents about many of the same “copycat” products, with New York Attorney General Letisha James declaring: “[T]hese unregulated and deceptive cannabis products will only confuse and harm New Yorkers, which is why they have no place in our state.”
Background
A patchwork of regulatory approaches to cannabis and THC has been adopted and enacted across the United States. Further, the advent of Delta-8 THC products, following the legalization of hemp production under the 2018 Farm Bill, has resulted in additional regulatory differences between states. The June 23 letter acknowledges these differences, while also sharing a core concern for youth health: “The undersigned Attorneys General do not all agree on the best regulatory scheme for cannabis and THC generally, but we all agree on one thing: copycat THC edibles pose a grave risk to the health, safety, and welfare of our children.”
The group cites specific examples of youth unknowingly ingesting such edibles and having to seek medical attention, while also noting that “[i]n the first half of 2021, the American Association of Poison Control Centers reported poison control centers received over 2,622 calls for services related to young children ingesting cannabis products.”
What Are These Products?
The letter indicates that the products are sold through e-commerce platforms — websites advertising Cannaburst and Stoner Patch Dummies, which are not hard to find.
It is not entirely clear whether the attorneys general refer specifically to hemp-derived THC products, such as Delta-8, Delta-10, and even Delta-9 THC products sold outside of regulated dispensaries in most states but legally protected under federal law (read about that here), or whether they refer to federally-illegal marijuana products sold in contravention of state law. Nor is it clear from visiting one of the websites selling these products whether they contain hemp-derived or marijuana-derived THC.
The attorneys general admit that one would not find these products in a regulated dispensary, as most states already prohibit packaging that mimics popular snacks or potentially attractive to children. They also noted that these products often contain far more THC than typically allowed to be sold in state-regulated cannabis products.
What Actions Do AGs Want the Federal Government To Take?
The appropriate solution to this issue remains to be seen. The coalition wrote the letter to U.S. House and Senate leadership because it believes that Congress can remedy the situation by “immediately enact[ing] legislation authorizing trademark holders of well-known and trusted consumer packaged goods to hold accountable those malicious actors who are using those marks to market illicit copycat THC edibles to children,” or at least “think creatively for potential solutions to this growing public safety issue.” The trademark legislation fix likely refers to a gap in existing law identified by the Consumer Brands Association (CBA) as aiding the proliferation of such copycat products. According to a letter sent by CBA to Congress earlier this year, the SHOP SAFE Act, which aims to combat the sale of unsafe counterfeit products by incentivizing e-commerce platforms to engage in best practices for screening and vetting sellers and products, should be amended to hold the e-commerce platform contributorily liable in a civil action against an infringer that uses a famous, and not just counterfeit, mark. The definition of “counterfeit,” they argue, is not broad enough to capture these activities.
It’s important to note that if the products are indeed made with hemp-derived THC, then they are technically legal under federal law, hence the focus on trademark violations as an enforcement pathway.
What Options Do States Have?
The state AGs’ approach aligns with recent AG letters, stressing the importance of establishing a “cooperative federal-state partnership” that strikes the right balance to avoid “both under and overregulation.”
In the tobacco context, some states have passed and enforced online sales bans of electronic nicotine delivery systems (ENDS). They could similarly pass bans of online sales of such copycat products or products that violate their hemp-product standards where they exist. In addition, the state AGs could undertake enforcement actions on the grounds that these sales constitute unfair and deceptive sales practices. It remains to be seen, however, whether the actors behind these websites can be successfully identified and held accountable.
All attorneys with Troutman Pepper, Agustin Rodriguez is a seasoned business counselor to regulated consumer products companies, Chris Carlson represents clients in regulatory, civil and criminal investigations and litigation, and Christina Sava brings years of experience representing clients in highly-regulated industries, such as tobacco and cannabis.
July 1, 2022
Troutman Lawyers Detail MDO Lawsuits, FDA Action

By Bryan Haynes, Agustin Rodriguez and Matt Fay
Special to Vapor Voice
Since the U.S. Food and Drug Administration issued the first marketing denial order (MDO) in September 2021 as part of the premarket tobacco product application (PMTA) process for electronic nicotine-delivery systems (ENDS), vapor companies filed 49 appeals in 10 federal courts of appeal around the country. This update on the status of the cases is intended to provide a snapshot of the pending litigation.
As of April 2, 2022, 41 cases remain active and six have been withdrawn, one has been dismissed, and the Wages and White Lion Investments LLC d/b/a Triton Distribution v. FDA case has been merged with the Vapetasia LLC v. FDA case. The Wages and White Lion/Triton case is the furthest case along. The Fifth Circuit granted a stay of the enforcement of the MDO on Oct. 26, 2021, and heard oral argument on the merits of the appeal on Jan. 31, 2022. There is no expected date of the announcement on the ruling on the appeal, and the Fifth Circuit may not be feeling pressure to expedite its decision as the court has stayed the FDA’s enforcement of the MDO.
Fifth Circuit Court of Appeals
Breeze Smoke v. FDA, in the Sixth Circuit, was the next case scheduled for oral argument, with the argument docketed to be heard on Feb. 22, 2022. Breeze Smoke’s motion for a stay was denied by the Sixth Circuit in November 2021, however, and the company’s appeal of that denial was rejected by the U.S. Supreme Court in December 2021. Breeze Smoke then voluntarily withdrew its appeal of the MDO on Feb. 10, 2022, less than two weeks before the date of argument on the merits before the Sixth Circuit.
The other cases that have been withdrawn are American Vapor v. FDA in the Fifth Circuit, Turning Point Brands Inc., et al. v. FDA and Simple Vapor Company LLC v. FDA in the Sixth Circuit, and Humble Juice Co. LLC v. FDA and Al Khalifa Group LLC v. FDA in the Ninth Circuit. Of these cases, Turning Point Brands withdrew its appeal on Oct. 8, 2021, after the FDA rescinded its MDO. All the other withdrawn cases involved active MDOs. Fumizer LLC v. FDA in the Ninth Circuit also had the MDO withdrawn by the FDA in October 2021, and the case was dismissed by the court on Feb. 3, 2022, for failure to prosecute.
Three sets of cases in three different circuits are scheduled for oral argument within the next two months. Gripum LLC v. FDA is scheduled for argument in the Seventh Circuit on April 20, 2022 (no decision timeline). Enforcement of the MDO was stayed by the court on Nov. 4, 2021. Prohibition Juice Co. v. FDA in the D.C. Circuit (which has been consolidated with ECig Charleston LLC v. FDA, Cool Breeze Vapor LLC v. FDA, and Jay Shore Liquids LLC v. FDA) is next up, with argument scheduled on April 22, 2022 (court will resume April 28).
Seventh Circuit Court of Appeals
The D.C. Circuit has not stayed the enforcement of any MDO. The following month, the Eleventh Circuit will hear oral argument on two cases and one set of consolidated cases. These are Bidi Vapor LLC v. FDA, Pop Vapor Co. LLC v. FDA and the consolidated cases of Diamond Vapor LLC v. FDA, Johnny Copper LLC v. FDA, Vapor Unlimited LLC v. FDA and Union Street Brands LLC v. FDA. Of these, the Eleventh Circuit granted a stay of enforcement of the MDO to the Diamond Vapor set of consolidated cases on Feb. 1, 2022, and on March 14, 2022, the FDA did not oppose a motion for a stay filed by Pop Vapor, noting that while the FDA believed the MDO should not be stayed, the agency would not object since the court had already granted a stay in the other set of cases based on what were substantially similar facts.
Of the four sets of cases that have either already had oral argument on the merits or will do so before the unofficial start of summer in late May 2021, three involve courts (Fifth, Seventh and Eleventh Circuits) that have granted a stay of enforcement of the MDO. The fourth will be heard by the D.C. Circuit, which has not granted a stay.
The issues that either have, or will be, argued on the merits are substantially the same. For example, the appellant’s briefings in the cases consolidated along with Wages and White Lion/Triton, Prohibition Juice and Diamond Vapor all have the same four main arguments:
1) the FDA pulled a “surprise switcheroo” on each appellant by not stating in its guidance that the FDA’s determination would hinge on proof that flavored products facilitate smoking cessation in adults in a manner that significantly outweighed their alleged appeal to youth;
2) the FDA engaged in a superficial and cursory review of the respective appellant’s PMTA based on the sheer number of PMTAs filed industry-wide and based on the MDO’s limited discussion of merits or deficiencies of the PMTA’s content, which the appellants have described as “check-the-box” responses;
Credit: FDA
3) the FDA’s requirement to show that flavored ENDS will be more effective at promoting smoking cessation versus tobacco-flavored ENDS created a de facto comparative smoking cessation efficacy requirement that is prohibited under Section 910 of the Tobacco Control Act; or, in the alternative, that
4) if the FDA wants to require long-term studies, it should not be permitted to issue MDOs for at least an additional 18 months to give the appellant sufficient time to conduct these studies.
As the majority of the appellants discussed above have made substantially similar arguments but only three of the four circuits mentioned above have currently stayed the FDA’s enforcement of the MDOs, this increases the likelihood that at least one of these four circuits will rule on the merits in a way that differs from one of their fellow circuits. This would create the “circuit split” necessary for the U.S. Supreme Court to make a decisive ruling on the legality of the FDA’s decision-making process.
Of the remaining active cases not discussed above, it is also possible that these cases will move through the appeals process more slowly as the plaintiffs, the government and the courts wait to see how the pending cases are decided and how quickly the U.S. Supreme Court may act on any split outcome in the other courts. For example, in the Fifth Circuit, there are two cases that have been held in abeyance pending the court’s ruling in Wages and White Lion/Triton, and other circuits have also held cases in abeyance pending their action in related cases.
Bryan M. Haynes is a partner with Troutman Pepper who specializes in tobacco industry regulatory compliance and enforcement matters. He efficiently assists clients in complying with regulatory obligations and managing risk, consistent with clients’ business objectives.
Agustin E. Rodriguez is a partner with Troutman Pepper and has almost two decades of experience counseling tobacco companies in-house and in private practice on tobacco product regulation, taxation and multi-jurisdictional state and local enforcement issues.
Matthew J. Fay is an associate attorney with Troutman Pepper who offers representation in complicated matters, with a focus on complex criminal and internal investigations, government contracting, as well as evolving laws, regulations, and international treaties.

April 22, 2022
Divided Court Says L.A. Flavor Ban Not Preempted by TCA

In a 2-1 decision, a panel of the U.S. Court of Appeals for the Ninth Circuit held that the Family Smoking Prevention and Tobacco Control Act neither expressly nor impliedly preempts Los Angeles County’s ban on the sale of flavored tobacco products.
Special to Vapor Voice from the law firm of Troutman Pepper
On March 18, 2022, a divided panel of the U.S. Court of Appeals for the Ninth Circuit held that Los Angeles County’s flavored tobacco ban is not preempted by the Family Smoking Prevention and Tobacco Control Act, Pub. L. No. 111-31, 123 Stat. 1776 (June 22, 2009) (the “TCA”). Judge Lawrence VanDyke wrote the majority opinion, which was by joined by Judge Karen E. Schreier of the U.S. District Court for the District of South Dakota sitting by designation on the Ninth Circuit. Judge Ryan D. Nelson dissented. The case is R.J. Reynolds Tobacco Co., et al. v. Los Angeles County, et al., No. 20-55930 (9th Cir. Mar. 18, 2022).
As previously reported (here and here), the litigation focuses on a Los Angeles County ordinance making it unlawful for tobacco retailers/licensees to sell flavored tobacco products or components, parts, or accessories intended imparting a characterizing flavor to a tobacco product or nicotine delivery device. Enforcement of the ban was to begin May 1, 2020, and a few days later the plaintiffs initiated litigation in the U.S. District Court for the Central District of California. The plaintiffs contended that the County’s flavored tobacco ban is expressly preempted under the TCA, 21 U.S.C. § 387p(a), or impliedly preempted as an obstacle to the fulfilment of Congress’ purposes and objectives in enacting the TCA. At the trial level, Judge Dale S. Fischer of the U.S. District Court for the Central District of California held that the County’s flavor ban is not preempted. She denied the plaintiffs’ requests for a preliminary injunction and for summary judgment and dismissed the case for failure to state a claim.
The plaintiffs appealed to the Ninth Circuit. The Washington Legal Foundation filed an amicus brief in support of the plaintiffs. The State of California filed an amicus brief in support of Los Angeles County, as did a number of public health, medical, and local government organizations.
Judge VanDyke’s Majority Opinion
Judge Lawrence VanDyke
Judges VanDyke and Schreier affirmed Judge Fischer’s holdings, agreeing that the County’s flavored tobacco ban is not preempted.
On the issue of express preemption, the majority addressed 21 U.S.C. § 387p(a), including its “preservation clause” (subsection (1)), “preemption clause” (subsection (2)(A)), and “savings clause” (subsection (2)(B)).
In the majority’s view, [T]he TCA’s text sandwiches limited production and marketing categories of preemption between clauses broadly preserving and saving local authority, including any “requirements relating to the sale” of tobacco products. This unique “preservation sandwich” enveloping the TCA’s preemption clause reveals a careful balance of power between federal authority and state, local, and tribal authority, whereby Congress has allowed the federal government to set the standards regarding how a product would be manufactured and marketed, but has left states, localities, and tribal entities the ability to restrict or opt out of that market altogether.
As to the preemption clause, the majority held the County’s flavor ban is not a preempted “requirement which is different from, or in addition to, any requirement under the provisions of [the Food, Drug, & Cosmetic Act’s ‘Tobacco Products’ Subchapter] relating to tobacco product standards.” See id. § 387p(a)(2)(A). The majority read that clause’s reference to preempted “tobacco product standards” as “pertaining to the production or marketing stages up until the actual point of sale.” Thus, the majority concluded “that the phrase ‘tobacco product standards’ in the TCA’s preemption clause does not encompass the County’s sales ban.”
Ninth Circuit Court of Appeals
The majority continued, opining that even if the County’s flavor ban were covered by the preemption clause, it would still survive preemption as a permissible “requirement[] relating to the sale . . . of[] tobacco products [to] individuals of any age” under the savings clause. See id. § 387p(a)(2)(B). The majority opined that “[a] ban on the sale of flavored products is, simply put, a requirement that tobacco retailers or licensees throughout the County not sell flavored tobacco products.” As to the “of any age” language in the savings clause, the majority considered this to “suggest[] that state and local governments are not limited to enacting only age-based rules, but rather can enact regulations for people ‘of any age’—in other words, for everyone.
“Because the County banned the sale of flavored tobacco products to all individuals ‘of any age,’ the savings clause squarely applies.”
Holding that the County’s flavor ban also survived the claim of implied preemption, the majority said that the ban is not “‘an obstacle to the accomplishment and execution of the full purposes and objectives of Congress’ expressed in the TCA” as “the TCA does not mandate that certain flavors must remain available for sale, and expressly preserves local authority to enact sales regulations more stringent than the TCA.” (Citation omitted.)
Judge Nelson’s Dissenting Opinion
Judge Ryan D. Nelson
Dissenting, Judge Nelson opined that he would have found Los Angeles County’s flavored tobacco ban expressly preempted.
According to Judge Nelson, the focus of the County’s ban on the point of sale does not remove it from the preemption clause’s coverage as a “requirement which is different from, or in addition to, any requirement under the provisions of [the Food, Drug, & Cosmetic Act’s ‘Tobacco Products’ Subchapter] relating to tobacco product standards.” See id. § 387p(a)(2)(A). Judge Nelson referenced two preemption decisions of the Supreme Court addressing other statutory schemes, where the Court reversed the Ninth Circuit’s distinction of a State or local sales limitation from a preempted product standard. See Nat’l Meat Ass’n v. Harris, 565 U.S. 452 (2012); Engine Mfrs. Ass’n v. S. Coast Air Quality Mgmt. Dist., 541 U.S. 246 (2004). He also considered the majority’s reasoning to rely too heavily on the TCA’s preservation clause, which expressly states that it applies “[e]xcept as provided in” the preemption clause. See 21 U.S.C. § 387p(a)(1). The savings clause did not save the County’s flavored tobacco ban from preemption, as Judge Nelson read that clause only to “save[] for states the authority to enact age requirements.”
Judge Nelson concluded,
The majority reads these three clauses as a “preservation sandwich served up by the TCA.” Majority at 25. But in holding that Los Angeles’s ban is not preempted, the majority has actually folded itself into a pretzel. The majority argues that the preemption clause is “hardly useless,” because the federal government is still the only one that can technically set standards. Majority at 30–31. But under the majority’s reading, states and municipalities can ban anything made with standards that they don’t like, and thus can “opt out of [the federal standards]” entirely. Id. This is the very reasoning that the Supreme Court says “make[s] a mockery” of a preemption clause. Nat’l Meat, 565 U.S. at 464. By construing the TCA’s preemption clause to allow sales bans that defeat its entire purpose, the majority does just that.
(Alterations in original.)
References in the Eighth Circuit
Business concept about U.S. Eighth Circuit with sign on the piece of paper.
The Ninth Circuit’s majority and dissenting opinions have since been referenced by the parties to an appeal pending before the U.S. Court of Appeals for the Eighth Circuit. R.J. Reynolds Tobacco Co., et al. v. City of Edina, et al., No. 20-2852 (8th Cir.), on appeal from No. 0:20-cv-01402 (D. Minn. Aug. 31, 2020) (granting the City’s motion to dismiss and denying the plaintiffs’ motion for preliminary injunction). That case involves similar TCA preemption claims regarding the City of Edina, Minnesota’s prohibition on the sale of flavored tobacco products. It was argued before Judges Steven M. Colloton, Roger L. Wollman, and Jonathan A. Kobes on May 12, 2021.
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It remains to be seen whether the plaintiffs will seek further review of the Ninth Circuit’s decision en banc or before the Supreme Court.
For the time being, the Ninth Circuit’s decision is significant not only for Los Angeles County but also other jurisdictions within the Ninth Circuit that have enacted (or may enact) similar flavored tobacco bans. For illustration of the decision’s significance within the Circuit, as of the filing of California’s amicus brief on May 14, 2021, “at least 71 localities” in the State “ha[d] prohibited the sale of all flavored tobacco products,” and the State Legislature had passed similar legislation subject to a referendum to be held in November 2022. The majority’s holding and essential reasoning in Los Angeles County will be binding upon lower federal courts within the Circuit – and panels of the Ninth Circuit – addressing materially-similar TCA-preemption cases.*
It will also be interesting to see how the Eighth Circuit resolves the City of Edina case, including whether (and to what extent) that court considers Judge VanDyke’s majority opinion – or Judge Nelson’s dissenting opinion – more persuasive.
* Notably, there is a pending Ninth Circuit appeal involving claims that the TCA preempts San Diego County’s flavored tobacco ban, R.J. Reynolds Tobacco Co., et al. v. San Diego Cnty., et al., No. 21-55348 (9th Cir.), on appeal from No. 3:20-cv-01290 (S.D. Cal. Mar. 29, 2021) (granting the County’s motion to dismiss and denying the plaintiffs’ motion for preliminary injunction); however, that case has been administratively closed since May 28, 2021, and it is set to remain administratively closed until May 24, 2022
April 2, 2022
Biden Signs Budget, Gives All Nicotine Authority to FDA
Credit: White House
President Joe Biden on Tuesday signed a bill that gives the U.S. Food and Drug Administration powers over over any nicotine, not just tobacco-derived nicotine. Part of a $1.5 trillion government spending measure, the rider was slipped into the bill with no debate or notification to the vaping industry.
The language of the Tobacco Control Act will now change to define a tobacco product as “any product made or derived from tobacco, or containing nicotine from any source, that is intended for human consumption.”
“You know, in a moment, I’m going to sign this bipartisan government funding bill,” Biden said. “But with this bill, we’re going to send a message to the American people – a strong message – that Democrats and Republicans can actually come together and get something done.”
Bryan Haynes, a partner with Troutman Pepper, said that the amendment has an effective date 30 days after the bill is enacted (April 14) and gives a manufacturer of a tobacco product with synthetic nicotine (or nicotine derived from a source other than tobacco) 30 days after the effective date to file a premarket tobacco product application (PMTA) with FDA.
“If FDA has not authorized the product within 90 days after the effective date, the product must be removed from the market. This is likely to amount to an effective ban on synthetic nicotine products,” he wrote in the firm’s Tobacco Law Blog. “FDA is highly unlikely to authorize a PMTA in 90 days when other PMTAs for electronic nicotine delivery systems have been pending for more than two years.”
April Meyers, board president for the Smoke-Free Alternatives Trade Association (SFATA), told Vapor Voice that the bill will have little effect on youth vaping, which is already down significantly since highs in 2015. “Although the sponsors of the bill claim the intent was to close the loophole on synthetic nicotine-derived products from large companies now popular among youth, the reality is that this bill – and others like it – aren’t likely to have the intended effect,” she said. “Instead, consumers using these products as a harm reduction option will suffer, as will licensed small businesses in full compliance with federal, state, and local laws.
“The FDA created a problem by overregulating a product used by millions of adults who find vaping a safer alternative to smoking. When a market in high demand is overregulated, grey and black markets emerge where there are no regulations requiring safe products or ID checks.”
March 15, 2022
Congress May Allow FDA to Regulate Synthetic Nicotine
New Jersey Congresswoman Mikie Sherrill, on Dec. 15, introduced the Clarifying Authority Over Nicotine Act of 2021 — a bipartisan bill designed to give the U.S. Food and Drug Administration (FDA) the authority to regulate synthetic nicotine products just as it regulates nicotine products made or derived from tobacco. In a press release, Rep. Sherrill stated, “This bill will ensure all tobacco products, including products made with synthetic nicotine, are regulated by the FDA in order to protect kids in our communities and those who may seek to use these products.”
Credit: DedMityay
In a blog post, Bryan Haynes and Michael Jordan, attorneys with Troutman Pepper, state that, as it stands, the Federal Food, Drug, and Cosmetic Act (FDCA) defines “tobacco product” as “any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product.” 21 U.S.C. § 321(rr)(1) (emphasis added). As the FDA concedes on its website, “it’s possible that a disposable, closed system device that contains an e-liquid with truly zero nicotine (or synthetic nicotine) would not be regulated by the FDA as a tobacco product.”
That said, there are other ways FDA might try to regulate synthetic nicotine, whether under its authority to regulate a “component” of a tobacco product or as a “drug.” In November, FDA Center for Tobacco Products Director Mitch Zeller discussed the “component” aspect of the FDCA’s definition of “tobacco product” and suggested “that components and parts could include everything from coils and batteries to all the ingredients comprised in producing e-liquids (such as flavorings and vegetable glycerin) even if the product does not contain nicotine.” He added, “That’s an assessment that we need to make on a case-by-case basis based upon the totality of all the information that we have.”
FDA could also seek to regulate synthetic nicotine as a drug. The FDCA defines drug, among other things, as “articles (other than food) intended to affect the structure or any function of the body.” 21 U.S.C. § 321(g)(1). To the extent synthetic nicotine is intended to affect a consumer’s body, FDA could attempt to assert jurisdiction. Indeed, in the 1990s, FDA tried to regulate nicotine as a “drug” and cigarettes and smokeless tobacco as “drug delivery devices.” The Supreme Court in FDA v. Brown & Williamson Tobacco Corp. found FDA lacked such authority, but one of the Court’s key findings was that Congress had passed “tobacco-specific legislation [that] effectively ratified the FDA’s previous position that it lacks jurisdiction to regulate tobacco.” Today, things are different. The 2009 Family Smoking Prevention and Tobacco Control Act gave FDA the authority to regulate tobacco products. Should FDA regulate synthetic nicotine as a drug today, it could point to recent legislation from Congress giving FDA a role in this space more broadly. So far, however, FDA has not taken this approach.
With FDA having ordered more than five million tobacco-derived, e-cigarette products off the market, several manufacturers appear to have turned to synthetic nicotine to avoid FDA’s rigorous (and costly) premarket review process. In general, that process requires those who seek to market new tobacco products to demonstrate that their sale is “appropriate for the protection of public health” with the support of scientific evidence. 21 U.S.C. §387j(c)(4), (5). After receiving a denial from FDA of his premarket review applications, one vaping company owner took to Facebook to announce the company’s switch to synthetic nicotine, adding: “We never wanted to switch to [synthetic nicotine], but the FDA forced us to make that decision as we have so many adults relying on us [for alternatives to cigarettes].”
Lawmakers have taken notice. In November, a flurry of investigations and calls to regulate synthetic nicotine products reached a new high. On November 16, nine senators sent a letter to the FDA imploring the agency to regulate synthetic nicotine products. The authors expressed concerns that e-cigarette manufacturers like Puff Bar are switching to synthetic nicotine to skirt FDA oversight and pre-market review requirements to continue selling their products — including flavored products — that they assert appeal to youth. That same day, the North Carolina attorney general launched an investigation into Puff Bar for similar reasons. And, on November 8, the House Oversight Committer’s Subcommittee on Economic and Consumer Policy sent letters to e-cigarette manufacturers Puff Bar and Next Generation Labs LLC, requesting extensive records pertaining to the production and marketing of the companies’ synthetic nicotine products.
Time will tell if Congress will pass Rep. Sherrill’s Clarifying Authority Over Nicotine Act of 2021. Given the uptick in scrutiny of synthetic nicotine products, however, there is a strong chance Congress could give FDA a clear mandate to regulate synthetic nicotine in 2022.
January 4, 2022
Confusion Continues to Cloud Proposed Nicotine Tax
Credit: Leo Lintang
Experts say Congress’ latest attempt to tax nicotine is complicated, confusing and harmful to public health.
By Timothy S. Donahue
To help pay for an infrastructure bill, the U.S. Congress has again introduced an excise tax on next-generation nicotine products, such as e-cigarettes and snus. The excise tax would apply to nicotine vapor products using both natural and synthetic nicotine as well as nicotine pouches. Experts say the provision, which would ultimately be paid by tobacco consumers, goes against U.S. President Biden’s campaign promise to not increase taxes on those making less than $400,000, negatively impact tobacco harm reduction efforts, increase sales of combustible tobacco products and boost an already growing black market.
The nicotine tax has been removed and reintroduced to Biden’s Build Back Better (BBB) legislation at least three times. The proposed vapor tax provision is now part of the latest version of the administration’s social spending and climate bill. According to Ulrik Boesen, a senior policy analyst with the Center for State Tax Policy at the Tax Foundation, taxes on tobacco and nicotine products tend to serve at least two purposes: to improve public health and raise revenue. He claims that a nicotine tax could do that if it is properly designed.
Ulrik Boesen / Credit: Tax Foundation
“A good design means internalizing externalities related to consumption of a product,” Boesen stated. “With tobacco and nicotine product consumption, these externalities are the health risks connected to frequent use and [the] quantity consumed. Nicotine is the addictive substance in the products but not the harmful ingredient. In other words, the proposal does not target the harmful behavior directly.”
Taxing based on nicotine content would favor low-nicotine liquids and could encourage increased consumption in the quantity of liquid, according to Boesen. “For example, a vapor pod that has a nicotine content of 3 percent and contains 1 mL of liquid would be taxed at $0.83 whereas a vapor pod that has a nicotine content of 5 percent and also contains 1 mL of liquid would be taxed at $1.39 even if there is no difference, or even a negative differential, in broader health effects of the two pods,” he states, adding that the effects of the tax are most substantial for nicotine pouches, such that the category is unlikely to survive.
Other estimates show that a 60 mL bottle of e-liquid with 12 mg of nicotine e-liquid would be taxed at $20.02. A four-pack of 8 mL pods with 5 percent nicotine salt pods would be taxed at $4.45 and a 15-pouch can of 8 mg nicotine pouches would be taxed at $3.34 (alongside state and local taxes, the cost of a single can could grow to $20 in some states).
Bryan Haynes, a partner with the law firm Troutman Pepper who specializes in tobacco and vapor regulations, said that, at a minimum, the proposed nicotine tax is “a hastily written addition” that will “have a negative impact on tobacco harm reduction efforts and public health.” He said that it’s the first time the tobacco industry has seen an excise tax placed on an ingredient instead of a finished good. “This is an unprecedented type of tax that will ultimately drive former smokers back to combustible products,” said Haynes, adding that taxing an ingredient could also cause unforeseen issues for manufacturers, such as moving material between factories.
Bryan Haynes / Credit: Troutman Pepper
“If a company is producing nicotine or even synthetic nicotine, moving product from one factory to another could trigger the need for an Alcohol and Tobacco Tax and Trade Bureau (TTB) license, and when product is removed, so to speak, from their factory, they would be responsible for remitting the taxes,” explained Haynes. “There may be a way, for example, if the company removed the nicotine from their factory and transported it in-bond to another TTB factory that you could make that work. But it’s just not clear. There is the potential for a lot of unforeseen issues to arise the way the tax is currently being proposed.”
States often tax nicotine products by its cost. Boesen says the tax on the product will pyramid since the federal tax would be levied at the manufacturer level and the state tax is levied at the distribution level. “In effect, the state tax base includes the federal tax and becomes a tax on a tax. This means that even if the taxes on tobacco and other nicotine products are approximately equal at the federal level, by the time it reaches the consumer, the nicotine product will carry a higher tax (and often a higher price),” he states. “This is highly problematic when considering that cigarettes are much more harmful than nicotine products. That makes the federal tax proposal look like a harm-maximizing strategy.”
Credit: Tax Foundation
The bill also subjects synthetic nicotine products to the nicotine tax. Many in the industry have expressed concern that this provision could allow the U.S. Food and Drug Administration to assert authority over the substance. Synthetic nicotine is covered not only in the proposed tax bill but also in the Prevent All Cigarette Trafficking (PACT) Act, which bans the U.S. Postal Service from mailing any vaping products.
Azim Chowdhury, a partner at the law firm Keller and Heckman who specializes in vapor, nicotine and tobacco product regulation, said that’s just not possible and Haynes agrees. “The definition of a tobacco product in the Tobacco Control Act (TCA) is clear. It’s just not ambiguous; a product must be made or derived from tobacco, or a component or part of a tobacco product, to be a tobacco product,” said Chowdhury.
Azim Chowdhury
“Congress would have to change the Tobacco Control Act’s definition of a tobacco product in order to give FDA’s Center for Tobacco Products the authority to regulate synthetic nicotine products as tobacco products. That won’t happen overnight. I also see a scenario where synthetic nicotine could be regulated as a drug and that would be a whole different and more onerous regulatory regime.”
The FDA could, however, cite the inclusion of synthetic products in the PACT Act and the latest nicotine tax proposal in its lobbying efforts to change the TCA’s definition of tobacco, said Haynes. “I could see the FDA telling Congress, ‘You just amended the Internal Revenue Code to make these products subject to federal excise taxes just like tobacco-derived nicotine, so it’s not a big stretch to amend the Tobacco Control Act’ in the same way,” he explains. “That’s how I would do it. It’s not really a legal argument, but it could be a decent lobbying argument.”
It isn’t just vapers, business owners and attorneys that find fault with the proposed nicotine tax; researchers suggest the tax could also harm public health. Michael Pesko, an associate professor in the Department of Economics at Georgia State University, used a $1.4 million dollar grant from the National Institutes of Health (NIH) to conduct e-cigarette policy evaluation research, including the evaluation of e-cigarette taxes (Pesko receives no funding from the tobacco industry or related groups). Pesko found that e-cigarettes and other nicotine vaping products function as what economists call “substitutes” for conventional cigarettes.
“In practical terms, if e-cigarettes and cigarettes are substitutes, then raising the price of one on average leads people to increase use of the other. Given extensive peer-reviewed evidence indicating that these products are substitutes, an unintended but inevitable effect of increasing taxes on e-cigarettes is to increase cigarette use,” Pesko said. “Given that cigarettes are believed to be substantially more harmful than e-cigarettes, this effect on [combustible] cigarette use is concerning …. A wide array of research suggests that this boost in cigarette use as a result of large e-cigarette tax increases would significantly increase overall tobacco-related death and disease.”
Michael Pesko / Credit: GSU
These findings prompted Pesko to send a letter to Congress concerning the proposed vape tax. In the letter, he states that his research team’s economic evaluations of existing state and county e-cigarettes taxes found that increasing e-cigarette taxes to parity with the combustible cigarette tax rate would “sizably increase cigarette use across teens, adults and pregnant women compared to taxing tobacco products differentially in proportion to their health risk.”
Pesko said researchers found several concerning consequences of large e-cigarette tax increases:

Simulating the current bill’s e-cigarette tax on teen tobacco use indicates that this policy would reduce teen e-cigarette use by 2.7 percentage points but that two in three teens who do not use e-cigarettes due to the tax would smoke cigarettes instead. This would result in approximately a half million extra teenage smokers overall. This finding that teens substitute to cigarettes in response to e-cigarette taxes has also been documented using National Youth Tobacco Survey data.

The tax would raise the number of daily adult cigarette smokers by 2.5 million nationally and reduce adult e-cigarette users by a similar number.

For every e-cigarette pod eliminated by an e-cigarette tax, more than 5.5 extra packs of cigarettes are sold instead.

For every three pregnant women that do not use e-cigarettes due to an e-cigarette tax, one smokes cigarettes instead (study).
Pesko told Vapor Voice he was surprised to find that increased e-cigarette tax consistently resulted in substitution across various data sources. “And the magnitudes are fairly sizable,” he noted. “This is an unusual level of accordance for academic research.” Pesko believes that any tax on nicotine products should be based on quantity.
Boesen agreed. He stated that for vapor products, the “obvious choice” is taxing the liquid by volume (per mL), and for nicotine pouches, a tax by weight or per pouch is a straightforward solution. “It is the administratively simplest and most straightforward way for the federal government to tax these goods as it does not require valuation and as such does not require expensive administration,” he stated. “The nicotine tax proposal in the Build Back Better Act neglects sound excise tax policy design and by doing so risks harming public health. Lawmakers should reconsider this approach to nicotine taxation.”
Chowdhury said that the industry must do more and that interested stakeholders and consumers should reach out and push back on the nicotine tax because it will be devastating to the vapor industry. “It seems like the general industry feels like [this nicotine tax] won’t get through somehow, that some people will prevent it from being in the final bill, but I think it’s a huge risk,” said Chowdhury. “Without serious pushback, it could end up there; it could very well end up becoming law.”
Haynes said that if the nicotine tax bill ever makes it to Biden’s desk, “he’s going to sign it.”
November 15, 2021
2 Cases Ask SCOTUS to Take Away FDA’s Vapor Rules
The litigants in two lawsuits challenging the constitutionality of the the U.S. Food and Drug Administration’s (FDA) Deeming Rule for vapor products have asked the Supreme Court of the United States (SCOTUS) to take up the cases.
The cases are Big Time Vapes, Inc., et al. v. FDA, and Moose Jooce, et al. v. FDA.
Attorneys for the plaintiffs in the Moose Jooce case filed a petition for writ of certiorari, a request to have the U.S. Supreme Court consider the case. On February 26, 2021, the Moose Jooce challengers filed their petition asking the Supreme Court to take up questions related to their challenge to the Deeming Rule under the “Appointments Clause” in Article II, § 2 of the Constitution.
The plaintiffs claim that FDA acted improperly because the person that issued the deeming regulations was not qualified to do so per the Appointments Clause. In this case, the rule was issued by Leslie Kux, the associate commissioner for policy, and not the commissioner himself, according to an attorney for Troutman Pepper.
FDA has argued that the commissioner—in both 2016 and 2019—ratified the regulations. Both the U.S. District Court for the District of Columbia and the U.S. Court of Appeals for the District of Columbia have ruled against plaintiffs in the Moose Jooce case. The district court and court of appeals held that these circumstances did not render the Deeming Rule invalid. The plaintiffs are represented by the Pacific Legal Foundation.
In the Big Time Vapes case, the challengers petitioned the Supreme Court for a writ of certiorari on December 18, 2020. The case involves the claim that the statute purportedly authorizing the Deeming Rule is an unconstitutional delegation of Congress’ legislative power.
The challengers in the Big Time suit initiated their case in the U.S. District Court for the Southern District of Mississippi. The court granted the FDA’s motion to dismiss and denied the challengers’ motion for preliminary injunction and the Fifth Circuit affirmed the decision.
There is no guarantee that the Supreme Court will take up these cases. According to the Administrative Office of the U.S. Courts, the court accepts 100-150 of the more than 7,000 requests it receives each year.
The FDA will have the opportunity to respond to the challengers’ petitions before the Supreme Court acts on them. Review “is not a matter of right, but of judicial discretion,” and the petitions “will be granted only for compelling reasons.”
Currently, vapor businesses are still subject to the Deeming Rule.
March 9, 2021